Watch out for Spotify

“These are the problems the entire industry is facing, with every service and every app: discovery, revenue sharing, bigger catalogs, more users, and better ads to serve them. That’s where the competition is going to happen.”

There are many companies in audio, but only three key platform-level players in music, podcasts, and other media: Apple, Google, and Spotify. (In a year, Amazon could enter this list if it wants to, and really, it should.)

Sleeping giants

On its face, Apple and Google are the two that are most relevant to publishers. Not only do they have deeper roots in online news and the app ecosystem, but both companies are making big moves.

Apple has acquired Pop Up Archive, a podcast search company, and the . With the acquisitions, Apple shores up its position as the leader in digital music and runaway leader in podcasts — and keeps key assets out of its competitors’ hands. When it delivers its long-promised analytics suite for podcasts, Apple will be in a position to make publishers and advertisers very happy. Search opens up all kinds of new possibilities for consumers, publishers, and advertisers, from better discovery tools to sophisticated, weblike programmatic advertising. This will definitely be applied to audio, and could be used in video too. Apple has a huge first-mover advantage in podcasts, plus an enormous user base. There may be other players in the market, but Apple doesn’t want to share.

Google, on the other hand, has more and better advertising tools than almost anyone else, and YouTube gives it a huge advantage in video. Its parent company Alphabet is set to , its subscription video service, folding all three into a subscription service under the YouTube brand Google Play has a tiny footprint in podcasts right now, but the extra visibility they might get under the new service with a big company-wide push could change that in a hurry.

Amazon’s exhibited lack of interest in podcasts is a mystery. The company owns the biggest player in audiobooks, thrives on self-service publishing in ebooks, and its most popular hardware device line, the Echo, is a smart speaker. Amazon built something that could and should be a podcast machine, but forgot the podcasts — except indirectly, through third-party apps like TuneIn, Anypod, or Spotify.

Apple, Google, and Amazon are giants with money to burn: audio helps keep customers in their backyards, but none of them live or die by it. All three have good reasons to want to own podcasts, and non-Netflix digital media more generally.

Nevertheless, I want to make the case for Spotify, the company with audio at its core, and that’s made a big leap in podcasts in the last year — not least because Spotify’s evolution helps explain what Apple and Google are up to.

First, my confession: in the past, I have been a Spotify hater. I’ve complained about its software crashing all the time. I trashed its business model and openly doubted whether it could succeed after Apple and Google showed up. I made fun of its ads, which were terrible longer than they’ve been…kinda good? I even downloaded skins to make the app look more like Rdio. I am not the guy who showed up in 2017 ready to speak up for Spotify. But now, at the end of the year, I use the app every day; I think it’s on one of the most interesting trajectories in media; and I firmly believe publishers should be paying close attention to how it works.

Stay indie, stay foolish

Spotify should have been gobbled up by a bigger company a long time ago. With Apple, Google, Amazon, and Tidal all jumping into the space, Spotify looked like it might be more of a service than a company. It has huge market share and still operates at a loss. Not long ago, its investors were getting itchy; even now, on the verge of a public offering, giants are swooping in with offers of stock swaps, looking to nab a piece of Spotify and shore up its value.

But sometimes a rising tide really does lift all boats. All Spotify’s competitors helped convince consumers to start paying money for music. It’s not profitable yet — in fact, — but its revenues have grown, to $3 billion in 2016 and $2.2 billion in just the first half of 2017. Its operating margins are up to close to 22 percent. The company some people (including me) thought could never stand on its own will probably be publicly traded early in 2018.

More importantly, the service has gotten better. There are holes in the music catalog, mostly by competitors and die-hards, but they’re closing, and matter less than they used to. The discovery tools, from recommendations to retrospectives, are getting smarter and more sophisticated. The social tools remain robust, as Spotify’s managed to leverage Facebook without being beholden to it. There are lessons in this.

You have to marvel at what Spotify has been able to do. Backed by music industry investment and tech sector investment, it’s built an independent media delivery platform that successfully competes with giants. It delivers equally well to desktops, phones, and home speakers. Juggling subscriptions with ads (and the ads really are getting better), it may have the most successful freemium product in the history of the internet.

I don’t know whether or not a “Spotify for news” is possible or even desirable. But it’s clear that there are lessons for publishers in Spotify’s success. And when it comes to audio and video journalism, Spotify itself is a serious platform that deserves serious attention. The core of the business and the product may be music — but there’s no reason it has to stay that way, and every reason it should build itself into something new.

Podcasts, podcasts, podcasts!

Spotify introduced podcasts in early 2016, but only made . It also has videos and concerts. But for the moment, podcasts are the tip of Spotify’s multimedia spear.

Here’s another confession: I love Spotify as a podcast app. There are no bulky downloads like iTunes, no hunting and gathering like SoundCloud, and they’re not isolated from other audio options like Stitcher or Overcast or the dozen or so podcast-only apps. Switching between devices is a snap: close a podcast on one machine, and it’s ready right where you left it on another.

For a variety of reasons, Spotify has gravitated towards big publishers with strong news and entertainment reputations: the major labels of the podcast world. So far, this includes ESPN, the BBC, The New York Times, The Washington Post, The Wall Street Journal, Vox Media, Slate, Gimlet, and the various U.S. public radio organizations, plus radio versions of TV network news shows. The publishers gain a solid discovery portal (something not all of them have on their own sites) and bigger potential audiences. They can run whatever native ads they want, and add revenue from Spotify’s preroll. They get promoted in discovery, where it’s a little easier to stand out than in Apple’s haystack. It’s a pretty compelling proposition.

But so far, Spotify hasn’t delivered its users. It’s not turning its music listeners into podcast listeners, at least on its platform, and it’s not winning users away from Apple, Overcast, Stitcher, NPR Music, or any of the other podcast apps that offer the same choices.

Meanwhile, Spotify is starving for video content and a way to differentiate itself from Apple and YouTube. (It has a few original series, but nothing essential yet.) And a lot of these same publishers have sunk a huge amount of money into video only to have Facebook (and to a lesser extent YouTube) pull the rug out from under them again and again. Isn’t there an obvious move here? Couldn’t publishers be Spotify’s major labels for audio and video?

What happens next

Spotify’s implementation of podcasts could use some work. Right now, when you browse on the desktop, it’s tucked away in a “More” submenu. It might be a design relic from when podcasts mattered to Spotify a lot less, but it reads as if the company’s ashamed of them. Right now, even search stinks: You can’t specify whether you’re searching for podcasts or music, and you can’t drill down by artist or topic within search. (This is one reason Apple bought Pop Up and Shazam: to keep them out of Spotify’s hands, and everyone else’s.)

But when Spotify gets serious about discovery for podcasts like it has for music, it has enough of the right kind of data to give its discovery engines some bite. Music preferences are a great proxy for demographics; add podcasts, web browsing data, and a social graph, and you get a very compelling picture of a user. That can be used to target ads, but it’s even more powerful in driving further use of the app.

Spotify needs to grow in everything: publishers, listeners, audio, revenue, data. Podcasts right now are a healthy coral reef; the system teems with indie producers who might be reluctant to embrace yet another platform. Spotify’s been picky about which podcasts it’s added and less than transparent about its criteria for adding them. Hardcore podcast listeners are fiercely loyal to the podcasts they love and unlikely to switch from whatever service they’re already using if they can’t find what they want. Spotify will have to figure out how to balance accessibility and discovery with comprehensiveness and credibility.

Spotify will also have to hit on a revenue sharing program that makes sense for everyone. Publishers might be desperate, but they’re not under the existential threat the music industry was when it threw in with streaming.

I’ve focused on Spotify, but these are the problems the entire industry is facing, with every service and every app: discovery, revenue sharing, bigger catalogs, more users, and better ads to serve them. That’s where the competition is going to happen.

Apple, Google, and Amazon all have leverage, because they own and control the devices. Spotify’s only advantage is that it works on almost every device. So Spotify will need the bigger tech platforms to not completely eat its lunch — in audio, in video, in everything.

Luckily, Spotify’s been in this position before with music, and mostly figured it out. It’s also getting an influx of cash and a mandate for growth. Selling more media to its users, keeping them inside the app as much as possible, could be a powerful way to grow — and to keep its current user base on board.

2018 is going to be a fascinating year for the podcast business. And I, for one, have given up on underestimating that little green dot.